Utilities group Centrica said yesterday that its British Gas Residential Energy subsidiary would only just break even for the full year.
The energy conglomerate's head of European projects Phil Bentley and new chief executive Sam Laidlaw said unprecentedly high wholesale gas prices would continue to impact on BG's ability to turn a profit.
The unit made a record loss of £143 million for the half year to June 30 compared with a £165 million profit last time.
"We always recognised that British Gas faced a tough year, with the wholesale gas prices for the calendar year up 70 per cent," Mr Bentley said.
"We expect the first quarter of 2007 to be 25 per cent up on the winter we've just had. British Gas will do no more than break even for the full year."
The loss, combined with continually rising gas prices, has forced British Gas's residential arm to raise its prices following a pattern established by EDF Energy and Scottish Power in the past few weeks.
Mr Bentley said that the fall in operating profits was largely due to the price rises, and had resulted in a loss of 430,000 customers in the first half.
"We're the biggest buyer in the wholesale market and prices went up £1 billion compared to the first half of last year," he said.
"We're trying to bring gas to the UK and invest in long-term infrastructure but it's tough. We're not alone in rising prices- EDF this week raised theirs by 19 per cent, and others will have to follow."
Mr Laidlaw said that his priorities in the second half of the year would be to reduce costs and made efficiencies, particularly at British Gas.
"I'm only three weeks in but I'm focused on a number of key areas.
"We have announced before that we want to make £200 million of savings in British Gas between 2004 and 2007, so 2006 is a year of transformation in effect."
He predicted that the crippling rises in wholesale prices this year would level out in 2007 and 2008, as a substantial amount of gas i mport infrastructure came on-stream at the end of this year.
Mr Laidlaw struck a conciliatory tone over any possible merger with Russian giant Gazprom, which has been linked with the UK utility.
"There have been no discussions with Gazprom over and above what you would expect us to have with any of our suppliers," he said.
Group net cash outflow from operating activities was £96 million compared with a cash inflow of £878 million last year, meaning that total interim earnings before except ional items fell to £278 million from £446 million last year.
This created an overall loss for the period of £59 million versus a profit last time of £871 million.
Shares closed up 0.25p at 292.75.